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8. Managing Your Portfolio > Compare Your Return to a Benchmark

Compare Your Return to a Benchmark

Portfolio cash flows must be identical to compare the returns for your portfolio to a benchmark.

Many investors think that they can compare the return for their portfolios with the published return for a benchmark, such as the S&P 500 index over the same period of time, and conclude that the larger return represents the better investment performance. In many cases, this approximate approach provides an acceptable answer. However, published returns assume a single investment typically at the beginning of the time period. If you contribute to or withdraw from your portfolio, comparing your return to the published benchmark return might not mean as much as you might think. For example, if you were contributing regularly during a recent slump in the market, your return might look worse than the benchmark’s return, until prices recover. Then, your investing du....


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